The Hidden Dangers in Short Sales: The Deficiency Judgments...

Congratulations!  After months of red tape and negotiations with your Lender, you were finally approved for a short sale.  Time to break out the champagne, right?  Not so fast!!!

 

Before you sign the Bank’s approval letter and hurry on to closing, remember that “the devil is in the details”…  One such small, but most significant detail is the possibility of a deficiency judgment.  “What is a deficiency judgment”, you ask?

 

Quick explanation: You owe the Bank $100,000, and you are approved for a short sale at the current market value, of say, $60,000.  The lender has the right to pursue you for the $40,000 difference via an instrument called a “Deficiency Judgment”.  Unless you live in California or Oregon – and even in these two states there are exceptions – brace yourself for the possibility of a deficiency judgment looming in your future, most likely after you get back on your feet financially.

 

Banks have been and are currently selling the rights to these deficiency judgments to collection companies who can then pursue you anywhere and for many years.  They can ask for financial records, have your wages garnished and, if you fail to respond, a judge can even put you in jail.

 

How do you avoid having a deficiency judgment ominously looming over your financial future when doing a short sale?  Make sure there is specific language in the Bank’s Approval Letter stating that the Bank gives up the right to a deficiency judgment.  Without that, you may be sitting on a ticking time bomb.

 

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What is a Deficiency Judgment?

Deficiency Judgments: The Ticking Time Bombs!